It’s a shock coming home from a trip to the Southern Hemisphere. Besides returning to the tail-end of winter after a brief summer respite, I’m finding as a tax policy wonk that the political climate in Washington, DC also takes some adjusting to. Here, the Congress is rushing to pass a tax bill to confiscate bonuses that have aroused public ire (See March 19 blog). Down under, they actually discuss serious tax reform. The most pressing issue is the taxation of income from corporate equity. The top Australian corporate tax rate is 30 percent (It’s 35 percent here, plus an average of a bit over 4 percent for state taxes.) And Australia has eliminated the double taxation of corporate dividends; when Australian shareholders receive a dividend from an Australian company, they receive a credit for the company tax paid. The result is that shareholders are taxed once at their individual rates of up to 46 percent.

The AIG bonuses are an outrage. But the bigger scandal is that a grandstanding Congress wants to use the tax law to punish the companies that paid them and the employees that got them. If Congress wants to limit bonuses for employees of bailed-out companies, it should just do it. But using the Internal Revenue Code is a truly terrible idea. And dipping into the Code to win political points is worse. Long ago, people were rightly outraged when Richard Nixon tried to turn the IRS into a weapon to punish his enemies. This gotcha tax is another variation on the theme, and nearly as inexcusable. Imagine, for instance, if a GOP Congress retroactively barred people from deducting charitable gifts to Planned Parenthood. Or Democrats imposed a 50 percent surtax on companies that that do security work in Iraq.